ZF Capital

Consider everything that appears on the tape as an evidence of support and lifting power, or pressure and selling power. Continually compare the strength of these forces. Use all the judgment and reasoning power at your command. Endeavor to improve your judgment by constant study and practice. Strive to lift your judgment from commonplace to good; from good to better; from better to excellent.

– Richard Wyckoff

The mechanical approach (to technical analysis) relies totally on observation. The judgement approach also depends heavily on developing a keen power of observation. The difference comes in what is being observed. In the mechanical approach, the investor is observing formations. He is provided with a set of models and then told to seek out as many carbon copies as he can find. The judgemental approach begins with a set of principles. The observation that is done is aimed at finding these principles at work in the market or a particular stock. When an investor finds one or more, he responds in a prescribed manner.

At this point, there might be an inclination to say, “what’s the difference?” There is a very basic difference. A formation is a constant. If a stock does not fit one of the molds, it is eliminated. It may produce an absolutely tremendous move, but in failing to produce one of the desired formations, it is branding itself as an outcast. And yet, there is still the ever present reality, that even in fitting one of the molds perfectly there is no guarantee of the desired result.

A principle, on the other hand, is more than a constant. It is an absolute. In the case of the market, it is a statement of condition that is unequivocally true. Given a certain condition, or set of conditions, the result will always be the same. These conditions may not, and usually do not, produce carbon copy formations. It is true that there are quite often similarities, but these are only general in nature and not a primary concern. What is of utmost concern is adhering to the principle. Quite frankly, this is more difficult than looking for formations. It takes more time and requires more skill. Proficiency does not come overnight.

– Richard Wyckoff

A stock market operator must be as hard-boiled as a five-minute egg; cold-blooded as a fish; deaf to all gossip; blind to news; and dumb as a door knob when it comes to discussing the market with others.

– Richard Wyckoff